Cooperatives Working Together uses herd retirement to fix milk prices

A half-million cows were worth more dead than alive, and now we're all paying the price

“Milk Money” won 1st Place for Best Story on Food Policy or Food Issues in the 2013 Association of Food Journalists Awards.

Scott Anderson

Joe Sonneker is the prototype of a Midwestern dairy farmer. Layered in flannel and a tan Carhartt jacket, his hulking physique bespeaks a man who has spent nearly his entire 64 years performing chores, a student of hard labor since he was old enough to carry feed.

"I guess I never thought of doing anything else, really," he says.

On a January afternoon, he trudges through snow on his farm in Melrose, a small town 100 miles northwest of Minneapolis. More than a century ago, Sonneker's grandfather cleared the 160-acre lot and started the small dairy farm that would be passed down for generations. But when Sonneker opens the door to a barn once used to milk cows, all that's left is cement and the lingering smell of manure.

Andy Mannix

Joe Sonneker was a dairy farmer his entire life, but sold all of his cows to herd retirement in 2009

courtesy of Joe Sonneker

Sonneker's grandfather cleared the 160-acre lot more than 100 years ago to start the family farm

Three years ago, Sonneker sold his entire herd to be slaughtered through a program euphemistically titled "herd retirement." Orchestrated by Cooperatives Working Together—a collective of America's biggest dairy co-ops, including Arden Hills-based Land O'Lakes—herd retirement slaughtered more than 500,000 dairy cows between 2003 and 2010 for one purpose: raising the price of milk.

It was a booming success. An independent analysis projects the dairy industry profited $11.7 billion off herd retirement. But critics point to the tremendous waste.

"I think that's the overriding reaction that I sensed: What are they doing?" says Jerry Dryer, one of the premier dairy market analysts in the country, of the program's critics. "Why aren't we marketing this product? There are hungry people here, there are hungry people overseas. Why are we restricting production?"

Last fall, the dairy consortium was served with a civil lawsuit alleging that herd retirement violates anti-trust laws. According to the suit, Land O'Lakes and other members of the co-op colluded in an illegal price-fixing scheme that cheated American consumers out of billions of dollars.

Critics of Big Dairy say herd retirement is symptomatic of an industry almost unrecognizable from what it was 30 years ago. As small family farms like Sonneker's disappear, they're replaced by massive operations designed to produce at high volume. The once-modest farmer cooperatives have turned into nationwide conglomerates that dominate the market.

For the consumer, the timing of herd retirement was particularly galling. Since the economic downturn in 2008, food costs and hunger have affected a growing number of Americans, says Chris Waldrop, director of the Food Policy Institute at the Consumer Federation of America.

"The economy was down—more people were out of work, more people were relying on food stamps," Waldrop says. "If prices rise on a staple like that, it makes it harder for consumers to put food on the table."

Herd retirement may be the most advanced attempt to control the dairy market in history, but it's far from the first.

During the Great Depression, Wisconsin farmers famously protested low prices by dumping milk by the barrel. The demonstrations resulted in an iconic photo depicting hundreds of empty barrels, stacked up in an arid landscape next to a set of train tracks, soaked in white liquid.

The government's response to plunging prices was to institute a floor on how low they could fall. When the price of dairy dipped below a level tied to the market, the government intervened and bought the excess. For four decades, the system helped maintain stable prices.

"It was a way of making a living," says Land O'Lakes farmer Pat Lunemann, who grew up in a neighborhood of successful small farms. "It was a time when just about everyone could milk cows and make it work."

By the early 1980s, the price-support program was bursting at the seams. With no limit on how much the government would buy, farmers flooded the market. The feds bought cheese, butter, and dry milk products by the truckload, filling limestone caves in Kansas City and empty naval ships on the Hudson River. At its peak, the U.S. had about a billion pounds of butter, a billion pounds of nonfat dry milk, and 500 million pounds of cheese in storage. In 1983 alone, taxpayers spent $2.7 billion to buy, ship, and store the surplus dairy. Dan Block, secretary of agriculture under Ronald Reagan, called the system "embarrassing, unacceptable, and intolerable."

The solution was the Dairy Diversion Program, which encouraged farmers to slow down production. When that didn't work, the USDA started the Dairy Termination Program, an ambitious, short-term project meant to reduce the number of milk-producing cows. It gave farmers the option to sell their entire herds for export or slaughter, if they agreed not to get back into dairy farming for at least five years. With good buyout prices on the table, 40,000 dairy farmers bid for inclusion. Ultimately the federal government accepted 14,000 bids, paying out $1.8 billion to remove 1.6 million dairy cows from production between April 1986 and September 1987.

But despite the dramatic numbers, the termination program didn't have a lasting effect on milk prices. Part of the problem was that farmers not involved with the program simply increased their herd sizes and production output to make up the difference.

"What happened in both of those is that you get some very impressive short-run impacts, but when the program is over, milk production comes roaring back," says Don Blayney, an agricultural economist with the USDA.

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I'm not saying I don't believe this story, because it wouldn't surprise me at all, but I'm having a hard time finding official legal statements on said lawsuit/district dismissal/etc. It'd be nice to see any links to sources -- maybe I'm just not seeing/finding them...

“Dairy economists say the international sales, especially the previously untapped market in Asia, have become more profitable in recent years.” I thought most Asian’s are lactose intolerant, how could that market could be growing?

"Big farms are also better equipped to weather bad years, says Land O' Lakes farmer Ron Miller, who recently upgraded from 150 to 1,600 cows". This is misquoted, you make it seem like he expanded the farm over a couple years. My father started expanding back in 1957 and now just reached 1,600 cows through internal growth. This exageration makes me wonder what else was stretched

This is a very easy business to get into. So, supply can expand rapidly. As a result there is too much milk. When the economy goes south, people do not buy as much. Therefore, too many cows. You cant keep them if they cost $ 3.00 to feed but only get $ 2.00 back. End of story.